Exploring options to refinance your home loan? We've covered off the main topics you need to know to make a more informed decision. From the fundamentals of refinancing right through to reviewing your current finances, we've got you covered.
Refinancing is the process of taking out a new mortgage to repay an existing loan: often because there has been a change in your personal or financial situation, or simply because you want a better deal on your home loan.
While this can be with the same lender, it is also common to change to a different provider. Those looking to refinance their existing mortgage are increasingly carrying out much of their research online by comparing home loans to review what the market has to offer.
It's not uncommon for lenders to handle most of the process once you have made your choice and been approved, so refinancing may be relatively straight forward and less complex than securing your first mortgage.
Refinancing can be a smart way to manage your money. It may give you the option of securing a better deal, consolidating debts, or unlocking equity in your current property, depending on the options you take.
When refinancing, you generally want to increase, decrease, or keep the loan amount the same.
Loan increases may be used to consolidate more debts or release capital for other expenditures, such as home renovations. Home loan rates are lower than those for credit cards, so consolidating your debts into one loan can make repayments simpler and reduce the interest owing each month.
Decreasing the loan amount may reduce the loan term, lessen your monthly repayments and secure a lower interest rate. If you're decreasing the loan by an injection of a lump sum, it may not always be necessary to refinance. It is a good opportunity nonetheless to assess what rates and terms home loan lenders are offering, in case you find a better deal that is more suitable for your changing needs.
Keeping the loan amount the same suggests that you are likely looking for a better deal. What constitutes a better deal is something that can only be answered by your specific set of circumstances. You may be currently paying for extra facilities you don't need, have improved your credit score and can now secure a better interest rate, or want to change to a fixed or variable rate to take advantage of market conditions. Whatever the case, comparing home loans online is a great way to start, as you will be able to soon gauge what deals appeal to you.
The first step when refinancing is to check the costs by checking in with your current lender. Depending on the Terms and Conditions of your current home loan, costs here will vary. The next step is often to compare home loan products to establish if you can find a better deal than your existing mortgage. If you'd like help with this process, contact with us is a great way to get expert advice on what options are available to you.
A broker will also be able to step you through the process of applying to refinance, along with any documentation you'll require. Once approved, your new lender will send a Letter of Offer and arrange settlement with your current mortgage provider. On settlement day you cease paying your mortgage with your old provider and start repayments with your new lender.
There are many reasons why you may want to consider refinancing, but for most people, it comes down to looking for a better deal for your circumstances. Reviewing your mortgage frequently will not only ensure you stay on top of your own finances, but also across mortgage products and market fluctuations.
Let's break down some the most common reasons you may want to consider refinancing:
You may wish to refinance in order to take advantage of lower interest rates offered by your current lender, or a new one. Since the new loan has a lower Loan to Value Ratio (LVR) lenders may offer better rates as the mortgage is perceived as lower risk.
If you find yourself with multiple debts all charging interest, you may be looking to consolidate debts into your home loan. This is one of many reasons why people refinance - the advantage here is that generally you would pay a much lower interest rate on a mortgage than other debts such as credit cards. If you have enough equity in your property, you may be able to consolidate your debt on your home loan.
Depending on your circumstances and the market, you may feel that paying more for a fixed rate loan gives you peace of mind, or you may decide that you'll save more on a variable rate and can cope with any price increases.
Through consistently paying all your loans on time, your credit score may have improved since signing up for your current mortgage. This could mean home loan providers will offer you a lower interest rate, as lending to you is now perceived to be lower risk.
If your personal situation had changed you may want to consider refinancing. This can include planning to have children, getting a promotion, or coming into some money - there are many different situations that may mean you want to review your home loan options.
If you need money, refinancing to borrow more may be an option if you have substantial equity in your home. The money could be for renovations, a new car, or even to put towards a bigger house.
If you feel your lender has treated you unfairly, they don't provide adequate support to suit your lifestyle, or they have just fallen short of your expectations, refinancing can be an option.
If you own your own home, chances are your needs may have changed over the years. Refinancing your mortgage may allow you to better-align your financial needs with your lifestyle - whether it be to have access to extra funds to renovate, consolidate debts such as a car or personal loan, or even buy an investment property.
Whatever the case, it's important to know where to start, and what steps to take.
The first step before looking at any new home loan product is to ensure you're familiar with all relevant information about your current mortgage. While your online account statements will tell you what you're paying and how often, also go through your original documents to see if you may be required to pay any costs associated with the loan, such as exit fees. These will vary depending on the Terms and Conditions of your current home loan contract.
Work out how much you need to borrow for the new loan. This includes paying off your old mortgage and any additional money required for other things such as renovations, debt consolidation or other expenses. Add any exit fees, and if you do not know of any charges, contact your lender and ask for a 'payout figure'.
With Stacks Loan it's easy to see home loan products side-by-side and make informed choices. Get an idea for any fees associated with the type of loan you would like and see if you can easily narrow the search in only a few clicks. You deal direct with your broker, no call centre here, you get a direct line or mail us is a great way to get expert advice on what options would be open to you.
The broker will be able to walk you through the application process. During this time lending criteria such as income, mortgage repayment history and other financial commitments will be examined.
Once settlement occurs, your new home loan is drawn down - this involves paying off your current home loan using the funds from the new loan.